2012 (5) TMI 364 - AT - Income Tax

Transfer pricing - arm s length price - Principle of natural justice - Deduction u/s 10A - international transactions in the nature of provision of contract software development - High Court in the case CIT v. Dalmia Promoters Developers (P.) Ltd. 2006 -TMI - 9467 - DELHI High Court wherein it was held that for rejecting the view taken in earlier assessment years, there must be material change in the fact, situation or in law. In this case, clearly there is neither any change in the fact, situation or in law. Decided in favor of the assessee by way of remand to AO Regarding short recognition of income under BSNL project - Held that- on this issue it has been urged by the assessee that the addition to income was made on the basis of revenue, as per advance purchase order. In this regard, it has been argued that this was done without considering the actual purchase order, produced before the DRP by way of application u/r 4 of the IT (DRP) Rules, 2009. Regarding marketing expenses - During the year under consideration, the Assessing Officer has considered the cost of mobile handsets issued to employees, AMSCs and Dealers free of cost and stock scrapped as capital assets on the basis that the assessee continues to be the owner of theses handsets and these handsets are not part of the trading activities of the assessee. Held that High Court had remitted the matter for Assessment Year 2000-01 and 2001-02 to the file of the ITAT and the ITAT vide order dated 22.9.2011 has remanded back the matter to the file of the Assessing Officer to fresh consideration. Decided in favor of the assessee by way of remand to AO. Regarding disallowance of 25 per cent of the provision for obsolescence Held that - dismissal of the ground raised by the assessee in respect of provision for obsolescence would not preclude the assessee from giving the information to sustain the claim in subsequent assessment years and that once such information is provided, the Assessing Officer would give due consideration to the same. - Decided in favor of the assessee by way of remand to AO. Regarding disallowance of excess depreciation - Held that this issue is squarely covered by the decision of the Hon ble Jurisdictional High Court in 2010 - TMI - 78240 - DELHI HIGH COURT - Income Tax C.I.T. v. BSES Rajdhani Powers Ltd. wherein it was held that the Court was in agreement with the view of the tribunal that the computer peripherals such as printer, scanner etc. form an integral part of computer system. Decided in favor of the assessee

Issues Involved:
1. Violation of natural justice in the assessment order.
2. Transfer Pricing adjustments.
3. Short recognition of income under BSNL project.
4. Treatment of marketing expenses on mobile handsets.
5. Disallowance of provision for obsolescence.
6. Depreciation on computer peripherals.
7. Credit for TDS claimed.
8. Levy of interest under section 234C.
9. Computation of interest under section 234B.
10. Initiation of penalty proceedings under section 271(1)(c).
11. Confirmation of additions/disallowances by the DRP without detailed reasoning.

Issue-wise Detailed Analysis:

1. Violation of Natural Justice:
The assessee contended that the order passed by the Additional Commissioner of Income-tax, following the directions of the Dispute Resolution Panel (DRP), violated principles of natural justice and was void ab initio.

2. Transfer Pricing Adjustments:
The assessee challenged the addition of Rs. 4,27,32,000 made by the Transfer Pricing Officer (TPO) to the total income on account of adjustment in the arm's length price (ALP) of international transactions. The TPO did not accept the economic analysis conducted by the assessee and rejected the use of multiple-year data for computing the ALP. The TPO also denied a working capital adjustment to the operating profit margins of comparables, which was inconsistent with previous years. The Tribunal remitted the matter back to the Assessing Officer to consider the working capital adjustment in light of the directions provided.

3. Short Recognition of Income under BSNL Project:
The assessee argued against the addition of Rs. 30,96,98,566 made by the Assessing Officer based on the difference between estimated project revenues and actual purchase orders from BSNL. The DRP had failed to consider additional evidence filed by the assessee. The Tribunal remitted the issue back to the Assessing Officer for fresh consideration, emphasizing the need to consider the actual purchase orders.

4. Treatment of Marketing Expenses on Mobile Handsets:
The Assessing Officer treated marketing expenditures on mobile handsets issued free of cost as capital in nature, allowing only depreciation at 15%. The DRP upheld this treatment based on previous decisions. The Tribunal noted that the High Court had remitted similar issues for earlier years back to the ITAT and remanded this issue to the Assessing Officer for fresh consideration.

5. Disallowance of Provision for Obsolescence:
The Assessing Officer disallowed 25% of the provision for obsolescence, considering it an unascertained liability. The DRP upheld this disallowance based on previous High Court decisions. The Tribunal remitted the issue back to the Assessing Officer, instructing them to consider the detailed information and basis for the provision provided by the assessee.

6. Depreciation on Computer Peripherals:
The assessee claimed depreciation at 60% on UPS, LAN/WAN equipment, etc., but the Assessing Officer allowed only 15%. The Tribunal referred to the decision of the Jurisdictional High Court in the case of CIT v. BSES Rajdhani Powers Ltd., which held that computer peripherals are integral parts of the computer system and thus entitled to 60% depreciation. The Tribunal decided in favor of the assessee.

7. Credit for TDS Claimed:
The assessee argued that the full amount of TDS claimed was not granted. The Tribunal remitted the issue back to the Assessing Officer for fresh consideration.

8. Levy of Interest under Section 234C:
The assessee contended that interest under section 234C was levied at a higher amount than offered in the return of income. The Tribunal did not provide a specific ruling on this issue, implying it would be reconsidered by the Assessing Officer.

9. Computation of Interest under Section 234B:
The assessee disputed the computation of interest under section 234B. The Tribunal did not provide a specific ruling on this issue, implying it would be reconsidered by the Assessing Officer.

10. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee contested the initiation of penalty proceedings. The Tribunal did not provide a specific ruling on this issue, implying it would be reconsidered by the Assessing Officer.

11. Confirmation of Additions/Disallowances by the DRP:
The assessee argued that the DRP confirmed all additions/disallowances summarily without detailed reasoning. The Tribunal's remittance of multiple issues back to the Assessing Officer indicates a need for thorough reconsideration and detailed reasoning.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting several issues back to the Assessing Officer for fresh consideration and ensuring that the assessee is provided with adequate opportunities to present their case.

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